Market facilitation by local government and firm efficiency: Evidence from China

Robert Cull (First Author), Tian Zhu (Participant Author), Li-An Zhou (Participant Author), Lixin Colin Xu (Participant Author), Xi Yang (Participant Author)

Research output: Contribution to journalJournal

42 Citations (Web of Science)

Abstract

We use data from a large survey of Chinese firms to investigate whether local government efforts to facilitate market development improve firm efficiency. Both government provision of information about products, markets, and innovation and government assistance in arranging loans are positively associated with firm efficiency, and those private firms with weak access to and knowledge of financial, input, and product markets benefit most from such assistance. These patterns are robust across multiple estimation approaches. Our examination of the determinants of local government facilitation also suggests that it gravitates toward promoting efficiency, though there are also indications that rent-seeking may play a role. Our evidence is consistent with the notion that government facilitation can help some firms overcome market failures in the early stages of a country's private sector development. Though causality is difficult to establish, we argue that changing fiscal dynamics that forced local governments to become increasingly self-reliant in generating revenue, and a government promotion system based on local economic performance, were key motivating factors for market facilitation by local government officials. (C) 2015 Published by Elsevier B.V.
Original languageEnglish
Pages (from-to)460-480
JournalJournal of Corporate Finance
Volume42
Issue number1
DOIs
Publication statusPublished - 2017

Corresponding author email

rcull@worldbank.org

Keywords

  • China
  • ECONOMIC-GROWTH
  • FEDERALISM
  • FISCAL DECENTRALIZATION
  • GRABBING HAND
  • Government facilitation
  • Local government
  • Market failures
  • POLITICAL-INSTITUTIONS
  • PRIVATE OWNERSHIP
  • PRIVATIZATION
  • PROPERTY-RIGHTS
  • STATE
  • TRANSITION ECONOMIES

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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